HomeReady = Subprime Mortgages

The US Government is at it again! Last week we reported on a new mortgage program called, “HomeReady.” It is new in name, and enhanced from the last time we got into a financial mess in 2007 through 2009.

In fact, when the crisis hit, the home buying market took a great plunge. Only in 2015 were more homes sold than in 2006. That is a long recovery, and especially so when interest rates were lowered to lifetime lows to stimulate purchasing!

The differences are in more than name only. The objectives are similar, namely, making home ownership more available to the average American, with emphasis on minorities and the poor. Only this time, Congress has added a twist.

Home ownership (according to the HomeReady inventors) is nowan Entitlement.

Constitutional scholars will probably have a difficult time finding the ownership “entitlement” in the pages of the great document. But a little thing like that will not slow down the purpose-driven elected politicians in Washington, D.C. How they are expanding this program is of great interest.

Before the last crisis, income had to be yours in order to qualify. But under the new plan, an applicant can count his or her own income, but also income from other people, in order to qualify. Non-family member? No problem! Not going to be on the mortgage? No problem! Earnings from other people (especially parents) who don’t live in the home? No problem!

After all, owning a home is an “entitlement,” right?

At least you will need a big down payment, right? Oh, no, how about 3%? Certainly you need a good FICO score, right? No way – 620 will do. By they way, 620 has an old name. We once called it “subprime.” Then certainly interest rates will be higher to reflect the added risk, right? Nosireebob, they will generally be at or somewhat under the market rates.

Many of us remember the Community Development Act (CDA), which forced banks to make loans in poor neighborhoods, and especially to minorities. These loans were destined to failure, but the omnipotent Federal bureaucracy knows all, sees all, and carries a very large stick. They not only passed the CDA, but continued to strengthen it until mortgage failures piled up to the crisis level.

Remember when President George W. Bush referred to “the soft bigotry of diminished expectations?” You ARE NOT doing these people a favor by setting them up for imminent failure. Rather than building a reputation and an increasing FICO score, they are being set up for failure, foreclosure, and a sinking FICO that will follow them for years.

Please, sir, may I have some more?

Far too often, the elected political class is overwhelmed with the need to “do something.” This must change! Economic liberalism is once again setting us up for financial pain and suffering.

Vote wisely. Your country needs you.

P.S. I’ll bet they will blame George W. Bush when the mortgage failures begin!